Google Smart Pricing: What Is It And Why It May Affect Your AdSense Earnings

If you have heard about Google Smart Pricing and are wondering what it is and how it may effect your Google AdSense earnings, here you may find some useful information and references.

Photo credit: Robyn Mackenzie - Mashed up by Robin Good

Until now Google Smart Pricing has been a kind of well-kept secret as very few people have written, researched and inquired about it. Google has also been very hesitant in sharing any specific information about this program, active since already two or more years, officially to avoid online publishers paranoia and not to help dishonest individuals from taking advantage of the system.

"When Google first started, you basically just earned a certain percentage of whatever the AdWords advertiser was paying per click. It was pretty simple. If the advertiser paid $1.00 per click and if you as a publisher were earnings 50% of that, you made $0.50.

Easy.

Google started to realize, though, that all clicks were not created equal. Clicks from some sites were more valuable than others, at least that's what they figured. So they came up with an algorithm, a mathematical equation for determining how valuable your AdSense account, sites and pages are, and use that equation to determine what percentage you get per click."

Can Google Smart Pricing be a threat to your AdSense earnings? Should you run to make changes to your AdSense ad placement if you see a sudden revenue drop?

The answer is no. You are likely to be just victim only of some normal market price fluctuation, but understanding what smart pricing is, how it works and how it does affect some AdSense web sites is positively going to help you plan better your online marketing and monetization strategy.

Smart Pricing - Overview

Basically, Smart Pricing is a discounting scheme that Google applies to AdWords advertisers who are not having a sufficient return on investment for some of the ads in their campaign.

Jensense, the AdSense expert reporter summarizes it like this: "Google's smart pricing feature automatically adjusts the cost of a keyword-targeted content click. So if our data shows that a click from a content page is less likely to turn into actionable business results - such as online sales, registrations, phone calls, or newsletter signups - we reduce the price you pay for that click."

"Basically, if you are a Google Adsense publisher running a network of sites, one low-performing website could cause Google to lower the ad prices (EPC) of all sites in your account.

Smart Pricing "black-box" techniques are definitely a cause of worry for Adsense publishers. I have personally seen my earning drop when I started showing Google Ads on another less-popular website. Once I removed ads from this website, it took about 7-10 days until my earnings graph hit the normal mark.

"

Smart Pricing has been devised for a number of reasons. The main one is probably the desire to increase advertisers spending on AdWords by providing an incentive for them to continue their less rewarding campaigns by heavily discounting their cost.

How does Smart Pricing work?

Smart Pricing takes into account how well visitors clicking on Google ads on your site, do later convert into real customers for the AdWords advertisers behind those clicked ads.

The overall principle is: When a Google AdWords set of ads, appearing on a partner AdSense site does not perform sufficiently well, (that is the advertiser sees little or no conversions after the clicks) Google tries to compensate the advertiser by discounting the cost of its CPC campaign clicks.

Therefore an online independent publisher using AdSense could see a sudden drop of revenues if Google Smart Pricing was one day to kick in.

The key aspect here is that Smart Pricing works across an entire AdSense account and not on a per page or per site basis. That is, you would not be discounted just for those bad performing ads, but for ALL OF THE ADS YOU DISPLAY ACROSS ALL OF YOUR WEB SITES.

On this very aspect, read what Amit Agarwal, a very successful online independent publisher (and an AdSense Premium partner) received in his email when he raised some concerns related to smart pricing to his AdSense account representative.

"I'm sure you know that Smart Pricing affects on an account level rather than affecting a particular website, based on it's performance.

Your website is an established blog, with quality traffic, and the chance of it getting Smart Priced is very low.

However, if you associate a new blog with your account, there is no guarantee on how it is going to perform, and based on that your account may or may not get Smart Priced.

Please factor in both these points, before you make a decision. If you are confident that the new blog will be akin to yours i.e. it will have great content, have quality traffic, and as a web property, it will be beneficial to our advertisers, then chances of it being threatened by Smart Pricing are very low.

Poor conversions may be caused by poor contextualization, highly irrelevant ads on the site, by adding one new site to your AdSense account, by having too much unrelated content published, and according to some sources also by a too aggressive placement of ads (generating false, unintended clicks) or by excessive filtering of advertisers (I am not too sure of why this would be the case, but I'll keep inquiring).

This is why even just one poorly converting web site can trigger smart pricing to discount prices across an entire account, even when this involves multiple web sites "completely unrelated to the poorly converting one" (Source: Jensense), making it a potential financial disaster threat for those maintaining small or larger networks of sites.

As Google then discounts ads for those advertisers not making effective conversions, the question raises spontaneous about how Google tracks and monitors such effective conversions for its AdWords advertisers.

The official answer to this is that Google tracks conversions for smart pricing publisher accounts through advertisers data who have opted into AdWords Conversion Tracking.

But you as an online AdSense publisher "...do not have access to any of the data that would be used to determine which sites (if any) are converting better than others."

That's why one key problem in this whole story is also "the fact that AdWords advertisers do not and are not required to reveal their conversion data to Google.

Google gives them that ability, but a lot of advertisers do not use it, so Google has to try and "guess" at whether or not your clicks are converting for those advertisers." (Source: Cyberindian.com)

As mentioned,the one good thing is that Smart Pricing kicks in and out every single week and therefore it is generally possible to snap out of it, once you are aware of its existence and have detected what could have triggered it.

What You Can Do To Avoid Google SmartPricing Affecting Your Site

From the online publisher viewpoint, if I have some pages that, while displaying AdSense ads, provide no conversion to the advertiser behind it (because the ads are not relevant to the readers of that page, or because the positioning of the ads made people click on them but they were not actually interested, etc.) I should promptly act on them by either:

a) dropping AdSense ads from displaying there (the loss of revenue could easily be made up with the re-established higher unsmart-priced CPCacross the rest of your account.)

b) optimizing, editing, improving page contents, adding more relevant information hoping that this can trigger better and more relevant ads from Google.

c) opening a separate AdSense account (difficult to do unless you have a second company) and assigning the guilty web site to it.

I know that in many cases this is difficult or next to impossible to do. This is why it is important to understand the logic of smart pricing and not to panic irrationally.

In most cases there is absolutely nothing to do. It is not smart pricing at work but just a normal market price fluctuation.

Secondly, a good thing to remember is that Smart Pricing is updated on a weekly basis. So, if you ever get hit, you can also easily get out of that situation as your reported click-stats to Google can inform in near real-time Google of your adopted changes and improvements.

While risky, removing ads from those suspected poorly converting web sites could result in seeing a positive adjustment to a higher smart pricing level in as little as a week or in as much as a month, as Google smart pricing is tracked with a 30 day cookie.

But be careful. Google recommends not making any such heavy changes unless you are really sure about what you are doing.

Identifying smart pricing at work is not an easy matter.Jensense reports that this is so "even using channels to differentiate sites because one site with a low CPM could actually be converting the highest, but is simply in a lower earning niche. But a publisher could mistaken a low CPM for also being poorly converting and remove those ads... which could result in even smart pricing reducing overall per click earnings even more."

Conclusions

What appears clear is that Google believes that web sites which do not convert that well should not cost as much as "good", reputable sites that send in potential customers that rapidly turn into clients.

In my opinion responsibility for ads conversion should fully rest on advertisers shoulders, but given that also the too aggressive positioning of ads on the part of online publishers, click fraud and accidental clicks do negatively affect advertisers investments on Google AdWords, I can see why Google has first considered and then enacted this advertiser protection plan.

In these situations it is very difficult to evaluate the true benefit that advertisers are getting, and for publishers even harder to know whether they have been actually hit by Smart Pricing.

"The percentage of clicks that convert for an advertiser is the most important factor in an advertiser's ROI, so it's not only possible, but common, to have a low CTR and a high advertiser conversion rate. It's also possible to have a high CTR and a low conversion rate. Don't remove the AdSense code from your site just because it has a lower CTR - it may be one of your best converting sites."

Google has so far been very restrained and ungenerous with its standard AdSense partners when it comes to share public information about Smart Pricing and how it does actually work. Their thinking is that the less people know about it, the less chance they are going to try to cheat the system.

While I can understand Google perspective I obviously wished it had been more open about Smart Pricing policies.

As final advice I think that everyone, including Google, Web searchers and readers, online independent publishers could all go home quite happy if they just followed the recommendations listed here below. These are from Jonathan Leger, creator of AdSense Gold, suggesting what to do in order not to ever fall prey of the Smart Pricing spell:

"Smart pricing definitely loves themed websites.

If your websites is devoted to Widgets, and only Widgets, Smart Pricing tends to reward your clicks better.

The narrower your targeting, the better.

However, Smart Pricing does not seem to penalize sites that have a group of related topics. So, for example, if your site is themed around Widgets but has content related to Red Widgets, Blue Widgets, Green Widgets, Building Widgets and Used Widgets, Smart Pricing seems to favor that. If you have themed topics, it's appears to be best to seperate them into subdomains or subdirectories. So don't put your articles on Red and Green widgets where they can be found like so:

In line with theming, having a domain name with your keywords in it also appears to be favored by Smart Pricing. So the "mywidgets.com" example used above is a good one. Having a domain like "http://www.someunrelatedsite.com" seems to draw penalties from Smart Pricing. So make your domain name match your theme, and split up your content into related topics in different subdirectories or subdomains.

The opposite of what Smart Pricing likes, it hates.

"

Possible negative triggers according to Leger could be:

Having too many topics on the same site really seems to draw penalties.

Having a domain name that has nothing to do with the topic of your site seems to draw penalties.

Hi James,
I don't think that placing AdSense ads on a squeeze page is a good idea. As you say those ads and the goal of the squeeze page are conflicting with each other, and in my experience BOTH will suffer.

2008-07-18 18:22:29

Ruthless Accountability James

Hmmmmm... I have conflicting goals by putting AdSense ads on the squeeze page so I am actually testing that right now.

I am testing to see exactly whether having Google AdSense on a squeeze page affects my conversion rate on getting people to sign up to receive information.

I am interested it see just how much of a difference it really does make and based on that data I can decide to take AdSense down--almost on a page by page basis--to reduce the risk of having my entire account flagged for Smart Pricing adjustments.

Sincerely,

James

2008-03-03 08:20:30

1stRated

Well this is great advice, I have been pulling my hair out wondering what I have done wrong with google. My revenue per click has gone down to around 4 or 5 cents per click. I used to get around 40 to 50 cents. I guess that I am being smart priced. So now will have to try and optimize my content and be more selective on where I place my adverts.

2007-12-07 03:48:38

Psycho Ape

good writeup ..I'm really not sure whether I'm a victim of it, but my earnings fluctuate. But I'm sure that's normal..I guess you can really determine if you're a victim is if your earnings keep going lower and lower?